Circulation of UPSI Through Whatsapp

ADJUDICATION ORDER No. Order/BD/VS/2020-21/7840

In respect of Shruti Vishal Vora
Under Section 15-I of Securities and Exchange Board of India Act, 1992 read with rule 5 of SEBI (Procedure for holding inquiry and imposing penalties) rules, 1995

The Origin

In November 2017 certain news articles surfaced in the print media referring to circulation of UPSI through private WhatsApp groups about certain companies’ performance before the Company’s submission to the stock exchanges on which they were listed.

On the basis of newspaper reports, Securities and Exchange Board of India (“SEBI”) initiated a preliminary examination in the matter. Search and seizure operations and on further examination, it was found that financial information / data of around 12 companies was leaked in the Whats App group.

SEBI investigated on information leak pertaining to financial performance of Bata Ltd for the Quarter October 2015– December 2015 for any violation of SEBI Act and (Prohibition of Insider Trading) Regulations, 2015 (“SEBI (PIT) Regulations”).

The Case

SEBI noted that Bata India Ltd announced financial results for the Oct – Dec 2015 quarter period on 10th February 2016 at 03:20: 32 hours on BSE and 03:21:00 hours on NSE.

Ms. Shruti Vora (“SV”) (that the person to whom Notice was issued by SEBI), received information on WhatsApp group called “Market Info” relating to Sales and EBITDA of Bata Ltd through Whats App on 10th February 2016 from one Mr. Aditya Gaggar at 12: 28 p.m and then from Mr. Shailendra Mehta at 03:13 p.m respectively.

Thereafter SV forwarded the same information on WhatsApp on the same day at 03:13p.m on a one on one chat to Mr. Parikshit Shah.

SEBI noted that the financial information of Bata Ltd circulated on Whats App was near identical and matched with the information that was subsequently disclosed by Bata Ltd on the stock exchanges (with very minute deviation in figures).

Therefore, it was alleged that SV being an insider had communicated UPSI relating to Bata India Ltd., to other person(s) through Whatsapp messages. Sharing of such UPSI is prohibited and thereby acted in violation of the provisions of Section 12 A (d) & 12 A (e) of the SEBI Act, 1992 and Regulation 3 (1) of SEBI (PIT) Regulations, 2015.

Issue(s) to be considered

  1. Whether SV violated the provisions of Section 12 A (d) & 12 A (e) of the SEBI Act, 1992 and Regulation 3 (1) of SEBI (PIT) Regulations, 2015?
  2. Whether SV is liable for monetary penalty under Section 15G of the SEBI Act, 1992?
  3. If so, what quantum of monetary penalty should be imposed on?

The Arguments

The recipient of Notice, SV argued that:

  1. SV had no connection or contact with the Company, it promoters / directors / employees / auditors. SEBI in the course of its investigation has concluded that there was no leak of information from the mentioned stakeholders. Therefore if there is not even a remote contact / connection with the stakeholders then such information cannot be UPSI. It could at best be market guess / gossip.
  2. There is no connection between SV and any person who is in possession of UPSI. For information to be considered as UPSI, estimates or their origins should necessarily originate from the Company or person in possession of UPSI.
  3. “Heard on Street” (“HOS”) is common practice with traders, brokers, market analysts and institutional investors. Such “heard on street” information is unsubstantiated gossip /speculation / rumors in the market. In fact the phrase is derived from the fact that analysts of the biggest brokerages are typically based on Wall Street in the U.S., Bay Street in Canada and Dalal Street in India. SV contended that though HOS is grapevine, it is shared internally amidst brokers, analysts and other entities internally amidst themselves, though HOS cannot be a sole factor in making trade decisions. SV further submitted that the information she procured was also from Bloomberg and that such information is “generally available” in public domain.
  4. There was no willful intention or attempt (mens rea) on the part of SV to source and or share UPSI. All information was received without solicitation and no mid was applied in sharing it / forwarding such information.
  5. Being employed with Institutional sales department of a stock broking firm, SV had to act as a bridge between the research team and clients which involved sending financial analysis, updates and recommendations. Therefore it was part and parcel of the job to accumulate and share financial information with clients.

SEBI considered and found that:

  1. The information procured from Bloomberg was general and did not originate from any one particular analyst or broking firm. The onus was on SV to prove on what basis specific financial figures were drawn from Bloomberg and shared on the WhatsApp group. SEBI was of the view that the information circulated among the closed group through whatsapp by SV which accurately matched with the subsequently announced results ought to have originated from the closed (WhatsApp) group.
  2. The information shared on the WhatsApp group being near identical with the financials subsequently published by Bata Ltd on stock exchanges would amount to say that the financial results of the said company were already become public and being discussed openly among the general investors. In the absence of any document or evidence on record to signify such fact even remotely, SEBI was not inclined to accept such a contentious argument by SV that the access to accurate financial results was available to larger public in the form of HOS.
  3. SV being employed in the Institutional sales wing of the broking firm, her job profile did not require her to share such information to various other unconnected entities prior to they being made public by the Company.
  4. The source of the information could not be traced back due to deletion of the messages in WhatsApp by sender. It gives a scope for transmission of UPSI through a chain of forward messages to various other entities/ closed groups thereby granting an undue advantage to them.
  5. A combined reading of Sections 12A(d) & A(e) of the SEBI Act 1992, with Section 3 (1) of the PIT Regulations 2015 prohibits any insider from communicating any unpublished price sensitive information, relating to a company or securities listed or proposed to be listed, to any person including other insiders except where such communication is in furtherance of legitimate purposes.

SEBI further referred to the provisions of Regulation 2 (1) (g) of SEBI (PIT) Regulations, 2015, which state that “insider” means any person who is:

  • A connected person, or
  • In possession of or having access to unpublished price sensitive information

Since “generally available information” is defined, it is intended that anyone in possession of or having access to unpublished price sensitive information should be considered as “insider” regardless of how one came in possession of or had access to such information.”

The Judgment

After detailed investigation and analysis, the Adjudicating officer on behalf of SEBI ruled that:

  • Based on recommendations of the Justice Sodhi Committee, UPSI is essentially information that is not generally available but on becoming generally available materially affects price of securities. Any information that is accessible to the public on non-discriminatory basis would qualify to be generally available. The said information has been circulated between the closed groups of entities including SV through WhatsApp messages which by its very nature make it a discriminatory access to the selected few. Therefore it can be considered UPSI.
  • Regulation 2(1)(g) of the PIT Regulations, 2015 inter alia envisages that any person who is in possession of UPSI is regarded as an insider. The said provision clarifies the legislative intent of the said provision by stating that such person is to be considered an insider regardless of how the UPSI has come into his/her possession. Therefore, once information is established to be a UPSI, anybody who is in possession of such information will be an insider.

The WhatsApp messages sent by SV to Mr. Parikshit Shah on 10th February 2016 constituted UPSI even though it was only 8 minutes before the UPSI became public. Consequently SV is considered an insider with respect to the UPSI she possessed.

Regulation 3(1) of PIT Regulations, 2015 prohibits communication of UPSI from an insider in any mode. SEBI noted that the regulation does not exempt the person from the guilt of communicating merely on the fact that no trades had taken place based on the UPSI thus communicated.

  • In the case of sending information through WhatsApp, there is a technical constraint as the end to end encryption system of transfer of information because of which the data cannot be accessed by third party except receiver and sender. In case of the deleted messages as in this case, the complete trail is lost. Since SV admitted to having circulated the message to market associated persons, in order to safeguard investor interests, a liberal interpretation of the regulation cannot be taken.

Based on the above, SEBI ruled that SV was an “Insider” with access to UPSI and for circulation of UPSI through WhatsApp before such information was made public was held to be violation of Sections 12 A (d) & 12 A (e) of the Securities and Exchange Board of India Act, 1992 and Regulation 3 (1) of SEBI (Prohibition of Insider Trading) Regulations, 2015. SEBI imposed a fine of Rs. 15 lakhs on SV.


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